Insightandperspectivesondevelopmentsinmergers+acquisitions

Notice provisions in purchase agreements: to email or not to email

Email has become an integral part of the way in which most businesses conduct their day-to-day affairs. According to a recent study, the number of worldwide email users will rise from 3.7 billion in 2018 to over 4.1 billion by 2021. While email continues to grow as a favoured mode of communication in the business world, new demands have surfaced in the M&A context as a result – particularly, in regards to the use of email for providing contractual notice.

In a typical M&A transaction, there may be some reluctance to allow for notice delivery by email. The notice provision (which tells parties how they can deliver effective notice to other parties under the agreement) may either exclude or not explicitly include email as an acceptable method of notice. However, it will be necessary to consider whether email should be accepted as proper notice in two different scenarios: (i) when a party wants to include email as a form of notice in the contract-drafting phase, or (ii) when a party uses email to provide notice, although not expressly permitted by the contract.

Risks of allowing email as a form of notice

In the first scenario – where a party wishes to expressly allow for email communications – it is important to consider the following risks associated with email:

Confidentiality: There is naturally a concern over confidentiality as emails can easily be circulated. In certain scenarios, an email can be widely disseminated by inadvertence. For example, this could occur by mistakenly responding to all recipients in an email chain as opposed the intended recipient.

Authenticity: Unlike more traditional forms of notice, electronic mail can be altered by the recipient, creating evidentiary issues in the case of a dispute.

Receipt: From a practical standpoint, an email notice can be deleted or overlooked, especially given the volume of emails sent and received in any given day. For context, the study referred to above also indicates that the average office worker receives approximately 121 emails each day.

Technology: Emails can get caught in spam filters, lost in “cyberspace”, or may not be delivered due to some inexplicable server error.

Mitigating risk when email is an accepted form of notice

While it may not possible to counter all of these risks, the issues created by the potential of non-receipt can be mitigated in the contract-drafting phase. As a starting point, where email is contemplated as a form of notice, the relevant notice provision should be drafted to state that email is a permitted method of delivery. More importantly, the provision should address the consequences of email notices that are not received. Some options include:

Requesting acknowledgement: The notice provision can require the recipient to acknowledge receipt so that both parties can be reassured of delivery. There are also other forms of direct acknowledgment, including the use of a “read receipt” function in programs such as Outlook (which will provide an automatic notification to the sender when the email is opened) – although this technology can be faulty, creating further uncertainty. As an alternative, one could resort to the use of software applications such as “RPost” which can track and prove email correspondence. However, not all parties may have the necessary software or means to acquire it.

Deemed receipt: Arguably, the best solution is to stipulate the means necessary for an email to have been “deemed received” in the contract. For instance, if the sender has not received an email reply within a specified period of time, the sender can resend such notice by other means, and the delivery date would effectively be the date on which the initial email was sent.

Especially with the use of a deemed receipt provision, it is indeed possible to create greater certainty around the use of email.

Email not expressly permitted as a form of notice

In the second scenario – where a party sends a notice via email, despite the notice provision having stipulated otherwise – the question of whether an email will constitute “good notice” depends on the interpretation of the notice provision as permissive or mandatory. As a general rule, notice clauses in a contract must be strictly complied with. Therefore, if the clause uses language such as “must” or “shall”, delivery by email will be ineffective notice, even if the email was received. On the flip side, courts will permit email notice if the clause is permissive rather than mandatory. The notice provision will likely be viewed as permissive where it does not prohibit email, using language such as “may”. In the case of a “permissive” notice clause, the ultimate test will be whether email delivery is “no less advantageous” to the recipient than the method specified in the agreement.

Either way, for greatest certainty, one must give careful consideration to the forms of notice that are to be permissible and draft a corresponding notice clause with as many forms of mandatory notice delivery which the parties agrees upon.

The author would like to thank Joseph Palmieri, Articling Student, for his assistance in preparing this legal update.

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